Microsoft's Bill Gates (pictured) has announced that he is handing over the chief executive officer (CEO) reins to Steve Ballmer, retaining his role as company chairman and taking on a newly created position of chief software architect.

The new role will free up Gates' time to shape a new strategy for Microsoft, which was also announced yesterday. The strategy calls for Microsoft to deliver applications and tools that will support a range of next-generation Internet-based services, as well as new versions of the company's Windows operating systems that will support those services.

At a press conference in Redmond, Washington yesterday afternoon (Pacific Time), the two Microsoft executives portrayed the change in leadership and direction as a seminal shift for the software maker on a par with the introduction of the PC GUI (graphical user interface) and the explosive birth of the Internet.

"There's more opportunity for software than there has ever been. ... In a sense you can say that you haven't seen anything yet," Gates said in today's teleconference. His new role as chief software architect will allow him to work closely with the company's product development groups in order to orchestrate delivery of the new software, he said.

"With Bill as chairman and chief software architect of our company ... I think we have an opportunity to repeat in the 21st century the kind of progress we helped make on behalf of our customers in the last century," said Ballmer, now Microsoft's president and CEO.

The software decade The changes at Microsoft reflect broader changes in the nature of computing and the expanded role that software and Internet-based services are playing in people's daily lives, Gates said. The coming decade may be remembered as "the software decade," in which the way business is done, as well as the way we listen to music and take photographs, will be defined by software, he said.

The cornerstone of the company's new strategy will be a family of applications and tools dubbed Next Generation Windows Services (NGWS), which Microsoft will deliver over the next two to three years, Gates said.

New user interface Without giving away many specifics, he said the new products will incorporate a new user interface and make use of emerging speech-recognition technologies. The company is also working on a fresh approach towards developing software applications, together with a new file system.

"We need to deliver a breakthrough version of Windows that allows PCs and servers to support these next-generation services and host them out there on the Internet," Ballmer said.

The types of Internet services NGWS will support might include an online travel service that not only allows users to book flights online, but notifies them of changes to their flight schedules via portable, Internet-enabled devices. Friends and relatives will have Internet-based calendars that will reflect the changes in schedule, Gates said.

In another example he offered, a user's healthcare records, history and payments could be managed and stored online, once again tying in with an online calendar that notifies the user of upcoming doctor's appointments.

Microsoft will deliver a few of the services itself, although most will be provided by other companies, Gates said. Microsoft plans to offer services for mobile users, knowledge workers, consumers in the home, and small businesses, Gates said, without elaborating on what those services might include.

Strategy roadmap Microsoft will flesh out its new road map at a strategy briefing in the second quarter of this year, Gates said. The first products specific to NGWS will be rolled out at a software developer event shortly after the strategy briefing, he said. The forthcoming Windows 2000 operating system, as well as new versions of the company's SQL Server database and Exchange groupware software due in the coming year, will also be integral components of the new strategy, Gates added.

Ballmer acknowledged that the revamped software effort could probably have been accomplished with the old management structure, but that "the time is now to supercharge every effort, and I think it sends a clear signal - maybe externally, but certainly internally - it sends a clear signal to people that this is our chance," he said.

DOJ trial: a 'coincidence' The news was delivered amid unconfirmed reports that the US government is plotting a breakup of Microsoft as part of its antitrust case against the software vendor. Gates and Ballmer rejected the idea that yesterday's news was a reaction to those reports, or to this week's announcement that America Online (AOL) and Time Warner plan to merge.

"The word 'coincidence' is probably the best word to be used," Ballmer said. "We've been in deep discussions about this kind of possibility for the past several months."

Still, Gates and Ballmer acknowledged that the changes at the company are necessary if Microsoft is to weather the challenges it will face in the decade ahead.

The idea that software can be sold as a service, rather than as a packaged product, along with the emergence of new operating systems like Linux, present real challenges for Microsoft, Gates said. The company's dominance in software is also threatened by the emergence of smart phones, Internet appliances and other non-PC devices that access the Internet, industry observers noted.

"It's a challenging time," Ballmer said. "But the times when Microsoft has been faced with challenges are often the times when we do our very, very best work."

New competition As Microsoft pursues its strategy to provide the new software and services, it will compete with the likes of IBM, the AOL/Time Warner conglomerate, Oracle and Sun Microsystems, all of whom have taken steps to provide online services and the software that supports them, Gates said.

Sidestepping a question about whether Microsoft would be able to complete its vision if the company is broken into pieces as a result of the US government's antitrust case, Ballmer said, "I think it would be absolutely reckless and irresponsible for anyone to try and break up this company."

Addressing the question more directly, Gates said Microsoft would not have been able to deliver the Windows 95 OS successfully if the company's operating system division hadn't been working hand-in-hand with its applications division to deliver 32-bit versions of programs like Microsoft Office.

The company doesn't see giant mergers on the scale of Time Warner and AOL as a necessary part of its vision, Ballmer said.

"The truth is our business is focused on software and the value software can deliver through services. I don't see the need for megamergers to get that done," he said.

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